Argentina is region’s second largest investor in poverty reduction, yet fails compared to its neighbors

RIO DE JANEIRO, BRAZIL – Twenty years after the great crisis of 2001, a recent study by the Fundar Foundation and the Center for Research and Social Action (CIAS) analyzed the evolution of social spending in Argentina over the past two decades, outlined the limited impact of the investment in fighting poverty and compared the impact of Argentina’s public policies with the rest of Latin America.

Prepared by Jesuit priest Rodrigo Zarazaga and political scientists Andrés Schipani and Lara Forlino, the study points to the composition of social spending, reaches a number of conclusions on the reasons for the rise in the number of people living below the dignity threshold in the continent and offers proposals to improve the impact of investments in a social context in which 40.6% of Argentines live below the poverty line.

Entitled “Map of Social Policies in Argentina. Contributions for a fairer and more efficient social protection system,” the report states that over the last decade, the Argentine State has failed to reduce poverty rates, contrary to what is happening in most of the region’s countries.

The report notes that the failure to reduce the rising poverty and exclusion figures is not due to insufficient public spending: Argentina is the second country in Latin America that invests the most in social protection, but the outcome of these allocations is equivocal considering the trend of the past few years.

From a statistical analysis, the authors conclude that Argentina – which historically had one of the lowest poverty rates in the region – is still in a good relative position and is only surpassed by Chile and Uruguay, which offer better indicators. But when comparing both historical terms and the allocation to social spending, the diagnosis is concerning, and over the last two decades, the country has lagged behind neighboring nations that managed to reduce their poverty levels at a faster rate.

Based on Economic Commission for Latin America and the Caribbean (ECLAC) data, the study shows that Argentina invests 11% of its GDP in social protection and is only surpassed by Brazil, which spends 12.6% of its GDP. Chile and Uruguay spend 5.8% and 7.3% of their GDP on social protection but their poverty levels are a third of Argentina’s.

The same is true when analyzing labor informality, another measure that shows Argentina in line with the average for the region but much worse when compared to its closest neighbors.

According to the Socio-Economic Database for Latin America and the Caribbean (SEDLAC), prepared by the National University of La Plata’s CEDLAS and the World Bank’s Poverty and Gender Group for Latin America and the Caribbean, Zarazaga, Forlino and Schipani indicate that in 2019, the number of employed people contributing to Argentina’s pension system stood at only 49.7% and 50.3% of employed workers were in informal labor.

That same year in Brazil, 63% contributed to the system and 37% were in the informal sector, while in Uruguay the formal sector reached 75.5% (24.5% informality) and 68.10% in Chile (31.9% informality). In other words, Argentina has twice as much informality as Uruguay and 58% more than Chile.

HOW ALLOCATIONS ARE MADE

The work of Fundar and CIAS describes the complexity of the local context and provides insights to understand the Argentine sub-optimal balance in the fight against poverty.

From its peak in 2002, when the share of people below the poverty line reached 54.3%, poverty decreased without ever breaching the 27% threshold and rose again to reach the latest available data of 40.6%.

“In Argentina during the first decade of the 2000s there was an unprecedented process of social welfare expansion for individuals outside the wage-earning society,” the authors say. And they add that state investment in social spending against poverty (what they call “direct and urgent social aid”) increased steadily over the last 15 years.

However, they note that the increase in public spending on anti-poverty programs was accompanied by a decline in poverty levels through 2013, the turning point after which the poverty rate exhibits little elasticity with respect to the increase in the funds allocated to reduce it.

It is no coincidence, given the devaluation during Axel Kicillof’s administration in 2014, under the last government of Cristina Fernández, the exchange rate soared and the country entered a process of deep instability that included the devaluation of Alfonso Prat Gay in 2016, of Nicolás Dujovne in 2018 and 2019 and the increase in the exchange rate gap during the government of Alberto Fernández.

Schipani, Zarazaga and Forlino do not analyze that factor. Instead, they choose to study the scale of social spending, not in relation to the budget or GDP, but in terms of its composition.

Therefore, they present the “map of social spending” between 2002 and 2020. They classify social programs found in 20 budget items that meet the characteristics of what they call “social, direct and urgent aid” into 6 major categories: 1) non-contributory pensions (highlighting pension moratoriums, disability pensions, old age pensions and the Universal Pension for the Elderly); 2) non-contributory family benefits (such as the Universal Child Allowance or Pregnancy Allowance); 3) food policies (especially the Food Card); 4) plans for informal workers’ cooperatives (such as Potenciar Trabajo or Hacemos Futuro); 5) educational scholarships (in this case, the Progresar program) and 6) subsidies for the preservation or promotion of formal employment (for example, REPRO, ATP or Jóvenes con Más y Mejor Trabajo).

The first conclusion is that investment in non-contributory pensions is higher than the balance of social spending as a whole, particularly due to the implication of the 2005 and 2014 pension moratoriums, albeit not only for that reason.

This implies that spending on poor elderly adults far exceeds spending on poor children: in 2019, for every peso that the State spent on family benefits for poor children, it spent 5 pesos (US$0,049) on pensions for poor elderly adults. According to the authors, this is a crucial aspect, which confirms the incorrect allocation of the budget aimed at reducing poverty.

According to the National Institute of Statistics and Census of Argentina (INDEC), by the first half of 2021 more than half (54.3%) of the population under 15 years of age was below the poverty line, while among older adults (65 years of age or older) the share was much lower, with only 13.8% living in poverty.

Furthermore, considering public spending on cash transfers, pensions, health and education as a whole, the average per capita investment by the State in the elderly has been more than triple that for children under 18 years of age.

Secondly, the Fundar and CIAS report registers a fact that both the government and the opposition recurrently mention, albeit partially: the programs for cooperatives of informal workers, which became a key element of social policy as of 2016.

Since the end of 2015, when Cristina Fernández left power, the number of cooperative members almost quintupled: it increased from 253,939 to 1,223,537 by September this year. If the peak during the Kirchnerist governments had been 657,090 cooperativistas between Argentina Trabaja and the Programa de Empleo Comunitario, during Mauricio Macri’s mandate, the allocations for that item increased substantially (37.94%) and reached 641,762 in 2019. By the end of 2020, the figure had risen to 760,664.

This soaring increase has a fatal downside in terms of real income, which has an impact on the purchasing power of beneficiaries. The authors note: despite the nominal increases, real benefits decreased 36% between April 2017 (creation of the Complementary Social Wage) and June 2021.

This phenomenon has been a constant in this type of plan since its inception in 2009. At constant 2009 pesos, the Potenciar Trabajo benefit levels represent only a third of those received by Argentina Trabaja cooperative members in 2009, the report states. However, and still according to the study, the largest drop in real benefits did not occur in the past 4 years but between 2009 and 2013, when real benefits fell by over 50% due to the erosion of inflation on nominal benefits, which were not adjusted until 2013.

However, the study focuses on the increasingly important role of social movements in the distribution of social assistance and on the growing inequity among workers in the informal economy. In November 2021, a typical household whose parents live in informality and receive a cooperative plan and also collect two AUH (Universal Child Allowance) for their children, has a benefit rate representing 258% of the benefit for the same type of household that only receives two AUH.

The main difference between these two types of households is not their level of poverty, they point out, it is basically organizational: if they belong to a social movement or, conversely, if they are not members of an organization. Perhaps these data may provide elements to explain the government’s difficulties in reaching the unorganized sectors that live with the minimum, the impact of the absence of the IFE (emergency family income) in the 2021 pandemic and even the electoral defeat of the Frente de Todos.

Finally, within the framework of direct and urgent social aid, the State invests increasingly more in policies aimed at the popular economy and increasingly less in policies that seek to insert the most vulnerable sectors into formal employment.

Hence the three proposals of Zarazaga, Forlino and Schipani: 1) a segmentation of the non-contributory family benefits system to better address the diverse problems associated with poverty and indigence; 2) a ‘Youth Employment’ plan that creates incentives for young people from informal households to enter the formal labor market; and 3) a plan to strengthen the integration of cooperative plans with the private sector.